Saturday, September 3, 2011
There is a new slogan in town replacing the “Yes we can” it’s “Yes we will”. Yes we will replace the idiots in office which have slowly but surely put a wrench into the economy and capitalist markets. One can see it in the schools especially the sports programs as equal time and keeping no score in the youth ages is norm. It’s in the marketplace where some companies receive tax breaks and free money while their competitors suffer. It’s in the work place where some thought 20 years ago there was no money in that career is now having a retirement bonanza. It’s in the attitudes of the under and unemployed seeking jobs. When will this end? How about next year -2012?
Next year could be the turning point. As discussed last year there will be rioting in the streets and we already saw it in Europe. In 2012 it will move across the pond into the great old USA. Our current government wants the majority to suffer so they can go out and print more money to give it away and in the long run put those people down even further. All they want is the vote. It’s both parties doing it and people are realizing that there isn’t one party that is better than the other. It’s not a punch one and done type of ballot.
The ballooning of the deficit is rather shocking over the past 5 years. There is no doubt that QE3 is coming in some type of form especially with elections next year. For once people will figure it out that free money (only to some) is not the answer. It turns free capitalism to all into free profits to the large companies. Let’s face it that America has prospered due to the small businessman. Now that small guy is getting run over by the big players which have all the chips on their side. They have access to free money, tax breaks and less regulatory expenses than the small guy. The small owner can’t compete.
The markets will anticipate the upcoming economic disaster. A sharp drop is expected and could take a few years or a few months to get to their bottom. With all this electronic trading it’s more likely to be a quick collapse followed by a sideways bottom. The move off this bottom could start in late 2012 or sometime in 2013 and lead to a booming economy and stock market for years to come. What the markets and the economy need first is a good old fashion washout in stocks and some policy change in Washington. Hopefully it starts sooner than latter.
Our economy has too much regulation. Everything is a process of having to be registered or licensed. In most cases regulation does stop fraud. There is more than one way to steal the candy out of the candy jar. Setting up a lemonade stand in your front yard in most areas is regulated which sounds a bit sour.
If government can stop the idea of them trying to fix the problems and let the private sector take over capitalism in America we would be better off. Government’s role is to keep the borders secure and criminals out of the country or in jail. Try going into another country illegally and see what happens.
The idea of trying to inflate our way out of the housing mess for banks hasn’t worked. Inflation will re-emerge but not for years although in some areas like food and energy inflation has picked up over the past few years. Farmland is also inflating and booming but again the result is helping the big guys as many farms aren’t owned by individuals.
Here we have the banks that received all the free money after taking on huge risk and leverage so the American dream can be had by all even if one has no income. The economy prospered until we overbuilt and owners stopped paying their mortgages. Our government pushed for housing for all then bailed the banks out and NOW wants to sue them for fraud. In reality the government is suing itself. This must have been dreamed up by lawyers so they could get both sides of the action.
Housing is in the final dropping phase maybe another 10-20% to the downside (inflation adjusted) and will enter into the bottoming phase which then could take years to develop into a bull phase. Those buying property in the next few years might not get rewarded in the short term of 2-4 years but down the road it will turn out to be a great investment. Just as getting into the teaching sector 20 years ago wasn’t thought as being a good paying career; builders will emerge as a good career down the road. There will be a huge need for replacement as houses deteriorate over time.
How low can the markets fall? Retesting the March 2009 lows or even breaking them is likely. This time unlike 2009 the rally won’t be a “V” pattern but rather a “U” shaped bottom. From the current 11240 the DOW dropping to under 10,000 should happen in the next 2-3 months. Dow support 1150 level then 10,700. A breach of those levels takes the market to 9634 although we could churn at the 10,000 level.
There already has been a lot of pain in the market in steel stocks for example as they have been shaved in half over the past few months. Of course the banks have been acting badly for most of the year. How is it that companies like Bank of America say they are sound and the next minute they are giving Warren Buffet a big chunk of the company for 5 billion? Is Warren Buffet’s money any greener or did they reconsidered their market to model accounting method and realized they are in trouble?
There is not much left in the hat to pull out over the next few years. Interest rates are zero, companies aren’t hiring and the dollar is weakening. Government spending has sharply grown the deficit with no positive response to the economy. Something has to give the next year and the markets are anticipating this economic earthquake. Right now there are tremors but down the road the big one kicks in.
Here’s a scenario from an old blog which the drunk keeps getting helped back to the stool and fed(no pun) more drinks only to stand up and thank everyone for their help(our government) then takes a slow step like everything is all right only to fall flat on his face and pass out. When the drunk wakes up sober only then did he realize what caused the bump was all the free drinks he received the night before but in this case when he feels into his pocket to find what money he has left he unfolds an IOU for 13 trillion and then precedes to bump the other side of his head when he realizes those drinks weren’t FREE.